1989 (12) TMI 270 - HC - Companies Law

Summary

Issues Involved:
1. Existence of debt due and payable.
2. Bona fide dispute.
3. Legality of instalment payments.
4. Failure to file affidavit-in-opposition.
5. Company's conduct and payment history.
6. Validity of promissory notes and cheques.
7. Court's discretion in winding up proceedings.

Detailed Analysis:

1. Existence of Debt Due and Payable:
The court emphasized the basic requirement under section 434 of the Companies Act, 1956, which is the existence of a debt due and payable by the company to the petitioning creditor. If the creditor establishes such a claim, the petition for winding up cannot be doubted. The court noted that the burden lies on the company to satisfy the court about the existence of a bona fide dispute regarding the debt.

2. Bona Fide Dispute:
The court discussed the meaning of "bona fide" as genuine and in good faith. A bona fide dispute should be based on substantial grounds. The court referenced previous cases and English law to clarify that a lack of bona fides does not necessarily imply fraud, but can lead to it. The court must assess the genuineness of the dispute and if satisfied, should allow the petitioning creditor to file a suit rather than proceed with winding up.

3. Legality of Instalment Payments:
The court acknowledged a growing practice of allowing companies to pay debts by instalments. Although the legality of this practice was not deeply explored, it was deemed healthy given the socio-economic conditions, as it allows companies to survive and maintain employment rather than face liquidation.

4. Failure to File Affidavit-in-Opposition:
The court noted that the company failed to file an affidavit-in-opposition despite multiple extensions. Justice Mrs. Monjula Bose observed that the company's failure to file the affidavit indicated a lack of bona fide defense and an attempt to delay and harass the petitioning creditor. The appellate court later directed the matter to be reconsidered based on an affidavit that was inadvertently not considered by the trial judge.

5. Company's Conduct and Payment History:
The company's conduct was scrutinized, particularly its repeated failure to adhere to court orders for payment and its attempts to delay proceedings. The court highlighted instances where the company was given multiple opportunities to pay its dues by instalments but failed to comply fully. The company's dilatory tactics were evident from the repeated requests for extensions and failure to make payments as directed.

6. Validity of Promissory Notes and Cheques:
The court examined the promissory notes and cheques issued by the company. The company claimed that the promissory notes were issued without consideration and based on the petitioner's representation that they would not be used. The court found this defense unconvincing, noting that the company's explanations were not credible. The existence of promissory notes and the issuance of cheques were significant factors in determining the company's liability.

7. Court's Discretion in Winding Up Proceedings:
The court concluded that the company failed to establish a bona fide defense that would warrant further adjudication. The defense was deemed a sham and not worth serious consideration. However, the court decided to give the company one final opportunity to pay its debts in instalments, with a strict schedule for payment. Failure to comply would result in the winding up of the company.

Conclusion:
The court directed the company to pay all outstanding dues to the petitioning creditor with interest at the agreed rate of 16% per annum. Payments were to be made in monthly instalments of Rs. 1 lakh each, with the first instalment due by January 15, 1990. In case of default, the court would order the winding up of the company. The court's decision balanced the need to enforce the debt while providing the company a last chance to avoid liquidation.